Aug. 5 (Bloomberg) -- KK Ho appeared out of nowhere last
year on the Royal Bank of Scotland Group Plc’s London trading
floor.

He had freshly printed business cards identifying himself
as a bond salesman. He met with customers and impressed
executives in internal meetings with his talk about rich clients
he knew, according to two people familiar with the matter.

Then, just as suddenly, he was out the door several months
later after bank managers began asking questions about him,
questions that led to the realization that he wasn’t a bond
salesman after all, the people said.

RBS, Britain’s biggest publicly owned lender, informed
regulators but otherwise kept the matter private, according to
another person familiar with the matter. Some details became
public when another bank executive mentioned it in a complaint
he filed over an employment dispute.

Ho had been a manager in RBS property services facing a
layoff, and was given a desk to help him find a new position,
according to the three people, who asked not to be identified
because they weren’t authorized to discuss it. Ho wasn’t
assigned to a team, had no manager and wasn’t authorized to sell
securities or meet clients.

Banks, plagued by probes into interest-rate manipulation
and improper sales of insurance and derivative products, remain
vulnerable to compliance failings in unexpected places.
Edinburgh-based RBS is trying to reinvent itself as a smaller,
retail-focused lender after it received a 45 billion-pound
($69 billion) bailout at the height of the 2008 financial
crisis.

Human Error

“This is a story of basic human error at many levels,”
said James Carlton, a regulatory lawyer at Fox Williams LLP in
London. “It’s difficult to understand how those in senior and
management roles both on the trading floor and in human
resources could have overlooked such a situation.”

Sarah Small, a spokeswoman for the bank in London, said RBS
identified a situation where an employee acted outside his given
role.

“As soon as this was detected, it was fully investigated,
and appropriate actions taken,” she said in a statement. “We
found no regulated activity was performed by this individual.”

A former RBS employee named KK Ho, when reached by
telephone, said he wasn’t the person at the center of the probe.
“That’s not me,” he said.

He said he worked in strategy and risk at RBS, and couldn’t
talk about his time there because of a legal agreement with the
bank.

Employment Tribunal

The case came to light in an employment tribunal lawsuit
filed by a former RBS trader, Alex Mallinson, who claimed he was
unfairly fired after being accused of manipulating internal
pricing systems.

In a witness statement given to the London tribunal in
February, Mallinson described an incident that led the
compliance department to treat employees more harshly.

The bank “uncovered a situation where an RBS premises
(building maintenance) worker had infiltrated the trading
floor” and “posed as a senior bond salesman,” he said in the
statement.

“Once the situation was uncovered it was dealt with very
swiftly, but the fallout was substantial.” The compliance
department was reprimanded and the incident “sent a number of
very senior managers that had been fooled into thinking this
individual was a top salesman, into a tail-spin,” Mallinson
said.

An employment judge ruled in May that while Mallinson was
unfairly treated by the bank, he contributed to his own
dismissal by breaching RBS valuation procedures. The judge
didn’t decide on damages, or mention the salesman.

Wealthy Contacts

While the tribunal documents didn’t identify the
individual, five people familiar with the matter said his name
was KK Ho. Ho told traders he had wealthy contacts they could
deal with, and was discovered when managers began asking who
among them was his supervisor.

RBS reported the incident to the U.K. markets regulator,
then known as the Financial Services Authority, and no
violations were uncovered, a person familiar with the matter
said.

Peter Nielsen, co-chief executive officer for RBS’s markets
business, and John Hourican, the bank’s former chief executive
officer for markets and international banking, were both aware
of the internal probe, one of the people with knowledge of the
investigation said.

Bankers selling investments or advising on them in the U.K.
need to be approved by the FSA, which was replaced by the
Financial Conduct Authority this year. Lara Joseph, a
spokeswoman for the FCA, declined to comment on the matter.

Portfolio Manager

A LinkedIn page for a man named KK Ho said he worked for
RBS from December 2003 to April 2012 as a “Real Estate and
Manufacturing Portfolio Manager.” Before that he was an
infrastructure services and facilities director at property
group Jones Lang LaSalle Inc., according to the page.

The page also said that Ho has degrees from University
College London and is a director of TKS Services.

University College London confirmed in an e-mail that it
awarded degrees in architecture and town planning to a man named
Kah Kui Ho. A listing on the U.K. companies registry for TKS
Service identifies Kah Kui Ho, a 58-year-old Singapore native,
as a director.

When reached by phone, the KK Ho identified on the LinkedIn
page said he had no connection to the events described in
Mallinson’s lawsuit. He now works at London-based Beehive
Capital LLP as a private equity director and fund manager,
according to his LinkedIn page.

Plans for RBS

The British government, which owns 81 percent of RBS, is
considering breaking up the lender to offload its weaker assets.
Stephen Hester, the chief executive officer, who plans to step
down in December, has shrunk its balance sheet by 900 billion
pounds and cut 41,000 jobs since taking over in 2008.

Operating profit at RBS’s core businesses fell 17 percent
to 2.46 billion pounds in the first half of the year, the bank
announced Aug. 2. It named Ross McEwan, the head of its U.K.
consumer unit, as new chief executive officer.

Even without regulatory breaches, the incident will have
led to “considerable concern and acute embarrassment” for
executives and traders who attended sales meetings with Ho, said
Carlton, the Fox Williams lawyer. “Now is clearly the time for
RBS to focus root and branch on its systems and controls.”